The importance of proactive organizational health assessments

Authored by Aparupa Bhattacharya, Sanjay Purohit, and Harish Patel

Organizational assessments: It’s time for a checkup

Preventive health care is one of the smartest investments you can make for your well-being. By scheduling checkups, patients can catch underlying health problems early, allowing for an improved prognosis and saving on costly medical bills. Would you be surprised to know that just like humans, businesses can also benefit from health checks? Rather than waiting for an external event or unforeseen pressures to force a checkup, initiating a proactive organizational assessment can help examine the health of your organization, drive changes for good health practices, and prevent problems in the future. These checks are now faster and more efficient than ever. Using existing organization data and analysis tools, organizational health can be diagnosed in just a few weeks.

The basics of organizational assessments

Organizational assessments provide insights into organizational structure and how labor investments are distributed across functions and layers of your enterprise. Such assessments often include a review of the distribution of headcount and costs, average spans of control, and number of organizational layers. As companies grow organically, priorities shift, and supporting talent needs evolve. An organizational assessment can help ensure good organizational health practices, answering questions such as:

1. Is your labor spend aligned to your priorities?
   Reviewing the total and average cost of your labor by function, geography, and layer can help you evaluate if your actual labor spend aligns with your priorities.
2. Are there opportunities to realign work to drive cost efficiencies?
   Evaluating where there is standardized work that may not require onshore supervision often points to opportunities for labor arbitrage.
3. Are there areas where you can optimize spans of control?
   Analyzing the spans of control across your organization will determine areas where widening the span of control makes sense and will optimize the number of people managers needed.
4. Is your organizational hierarchy efficient and effective?
   Identifying opportunities to reduce the number of organizational layers leads to a flatter organization, improves decision-making speed, and potentially decreases headcount.

Conducting successful organizational assessments

Feel daunted? An organizational assessment does not need to be a long, drawn-out process. High-level understanding can be obtained by analyzing existing organization data. The resulting insights can serve as key references for leaders when they’re ready to make organizational changes.

Take the recent example of an American retailer that was able to gain valuable insights from an organizational assessment conducted over three weeks. The retailer wanted to create a people and organization strategy that delivered on leadership’s business ambitions, addressed the dynamic conditions in the talent market today, and reinforced the retailer as an employer of choice. An organizational assessment was conducted to identify what adjustments to capabilities, teams, roles, and reporting structures were needed to execute the future organizational strategy. The assessment was conducted using existing enterprise-level people data, allowing the team to create detailed organizational reports by function. These reports provided leadership with an actionable path for designing the future-state organization.

Organizational assessments have also become particularly useful in the face of the challenges many companies encounter today—pressure to cut costs, optimize how work is delivered, and operate in an increasingly competitive landscape. According to Deloitte surveys, 48% of chief executive officers (CEOs) are pessimistic about the global economy,¹ and 54% of chief financial officers (CFOs) view cost reduction as a top priority for their CEOs in this business environment.² An organizational assessment can help address these pressures by quickly uncovering optimization opportunities and inform decision-making around the future organization.

We saw these results firsthand when one of the nation’s health care systems was looking to identify potential organizational design and cost-saving opportunities as part of a broader cost transformation. The team conducted a span of control analysis of more than 20,000 employees across more than 10 functions using existing people data and compared the data gathered with leading practice benchmarks. The analysis identified in excess of $30 million in labor cost-saving opportunities and served as the catalyst for the organization’s leaders to redesign their organizational structures for affordability, optimized span of control, and operational excellence.

The potential benefits of organizational assessments

While every organization will have its own unique goals and challenges, both examples show the value organizational assessments can provide. Leaders can use organizational assessments to:

• Gain an understanding on where headcount spending priorities lie. This enables leadership to understand headcount distribution across the organization.
• Inform decision-making on potential headcount savings. This provides organizations with insights on potential opportunity areas where headcount efficiencies can be gained through future restructuring efforts. Examples include target headcount, span of control analysis, and offshoring/onshoring analysis.
• Inform potential areas to vary headcount and costs across the talent ecosystem. This identifies where other forms of labor (for example, contractors or crowdsourcing) could be used to supplement your balance sheet workforce.
• Build a frame of reference to other organizations. This offers a view on how your organization’s headcount and labor distribution compare to others in the market.

Ultimately, organizational assessments help diagnose problems and identify what actions to take next. For some, that may be further exploration and redesign of organizational structure for greater efficiencies and effectiveness. For others, it may shed light on the need for regular assessments to maintain a consistent understanding of headcount and spending—and continually drive good organizational health practices.

How do I know if my organization needs an assessment?

It may be a good idea to take stock of the organizational structure as part of regular business planning efforts—to confirm that labor costs efficiently align with priorities. If an organization is considering cost restructuring, going through a transformation or merger integration, or has recently made other significant changes, then looking under the hood now can save the organization from a lot of trouble later.

Need help getting started? Deloitte can help quickly assess your organization, identify opportunities, and recommend next steps. Learn about our Organization Strategy & Design practice here.

Authors:

• Aparupa Bhattacharya
• Sanjay Purohit
• Harish Patel

Contributors: Samantha Krone, Lillian Wang, and Ben DeBasio

Endnotes:

¹ Deloitte, Fall 2023 Fortune/Deloitte CEO survey, 2023.
² Deloitte, “North American CFO Signals™ 2Q 2023 highlights,” 2023.